Cineplex, Inc. (OTC:CPXGF) Q4 2015 Earnings Conference Call February 9, 2016 10:00 AM ET
Pat Marshall - Vice President of Communications and Investor Relations
Ellis Jacob - President and Chief Executive Officer
Gord Nelson - Chief Financial Officer
Adam Shine - National Bank Financial
Paul Steep - Scotia Capital
Derek Lessard - TD Securities
Tim Casey - BMO
Aravinda Galappatthige - Canaccord Genuity
Kenric Tyghe - Raymond James
Rob Peters - Credit Suisse
Good morning, and welcome to the Cineplex, Inc. Fourth Quarter and Yearend Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead, Ms. Marshall.
Good morning. Before beginning the call, we'd like to remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liability and general economic conditions.
I'll now turn the call over to President and CEO, Ellis Jacob.
Thank you, Pat. Good morning and welcome to Cineplex, Inc.'s Fourth Quarter and Yearend 2015 Conference Call. We appreciate you joining us today. I will begin by providing a brief overview of our top line results as well as a summary of our key accomplishments during the fourth quarter. I will also highlight a few of the most anticipated films for 2016. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an in-depth overview of our financials. As always, once Gord has concluded his remarks, we will hold a question-and-answer period.
I’m very pleased to report that 2015 was the most successful year in Cineplex’s history. The record settings results were achieved in all key business metrics. Total revenue for the year increased an 11% to CAD1.4 billion, and adjusted EBITDA increased 24.3% year-over-year
New annual records were established for box office revenue which increased 5.7% to CAD 711.1 million, and attendance which increased 4.6% to 77 million guests. This was due to the success of multiple blockbuster films during the year including Star Wars: The Force Awakens, Jurassic World, The Avengers: Age of Ultron, Minions and Furious 7.
Gord will share the balance of our record setting fourth quarter and full year results with you in a few moments. Now I’d like to highlight our key accomplishments during the fourth quarter.
Looking at theater exhibition, Star Wars: The Force Awakens generated 22% of box office revenue during the quarter, even though the movie had only played for 14 days. Other standout performers included Spectre at 10.8% followed closely by the Martian at 9.2%. So let me put – the quarter was a tremendous success and proves once again that consumers love experiencing the movie in theater on a big screen with great sound.
During the fourth quarter we opened a three screen VIP Cinemas at our YongeEglinton location. This brings up total VIP Cinema locations to 15 with the total of 56 auditoriums at yearend. We also took the opportunity to upgrade the traditional theater at the same time including new seats, carpeting and a concession stand among others.
In early March we will celebrate the opening of our newest theater in the Marine Gateway area in South Vancouver. Cineplex Cinema’s Marine Gateway and VIP will feature seven traditional screens, UltraAVX and three VIP Cinemas.
Our media business is comprised of two areas, Cineplex Media and Cineplex Digital Media which combined generated record results in 2015. Cineplex Media, a wholly owned and operated advertising business delivered its best results ever due to record ShowTime and free show advertising sales. The combination of growth in key factors and the addition of new clients are the major factors behind the success.
Cineplex Digital Media represents our digital out of form advertising business which includes Digital Signage Networks both on the tap to purchase and shopping malls and office complexes, and at the point of purchase in quick service restaurants, financial institutions and retailers across North America.
Cineplex Digital Media provides an innovative and full turnkey digital solution for some of North America’s top brands including Tim Hortons, McDonalds, Restaurants of Canada, Royal bank of Canada, Scotiabank, Oxford Properties, Ivanhoe Cambridge and Rogers to name a few.
In November, we were very pleased to announce that Cineplex Digital Media had been selected by A&W Food Services of Canada Inc. to be the sole provider of digital menu boards for it’s over 850 restaurants across Canada and has already begun installation in some locations.
Subsequent to the yearend, American Dairy Queen in Cineplex Digital Media as the endorsed provider of in-store digital merchandising solutions for their stores to outpost the United States and Canada. This business is a strategic area of growth for us and we believe that Cineplex Digital Media is well positioned for significant growth throughout North America and beyond.
In amusement gaming and leisure, during the quarter we completed the acquisition of the remaining 50% of the issued and outstanding equity of Cineplex Starburst Inc. that we did not already owned for approximately CAD 21 million. As we look to support the existing businesses and grow with the Rec Room, amusement gaming is a strategic area of growth for us and we believe there are more opportunities to expand this business organically and through additional M&A activity.
We continue to move forward with the launch of the Rec Room Canada’s from new social entertainment destination having announced two locations during the year with the first opening in South Edmonton Common this spring and that [indiscernible] City in Calgary in the first quarter of 2017. Other locations are in active development and will be announced as they arrive.
Subsequent to quarter-end, Cineplex and WorldGaming Network announced for signing up a comprehensive deal with Sony Computer Entertainment Canada, a world leader and interactive entertainment in gaming hardware. Sony is the exclusive presenting sponsor for all our 2016 tournaments which we have named Cineplex WorldGaming Canadian Tournaments presented by PlayStation. We anticipate hosting approximately four national tournaments, annually. We also believe we can export this business model globally to other exhibitors and large venue operators providing a secondary future revenue opportunity.
We also announced that our first tournament will feature Call Duty: Black Ops III, the online qualifying portion began on January 7 and ran through February 7. The regional finals take place in 24 of our theaters on February 21 and the tournament culminates with the Canadian finals on March 6 at our Scotiabank Theater in Toronto.
On February 12, during the NBA All Star game taking place here in Toronto, Cineplex and WorldGaming will host a hands-on condense on your eSports Theater initiative from 5 PM to 8 PM at our Scotiabank Theater in Toronto. Sports fans and gamers like are invited to come and experience the thrill of gaming on the big screen. It is important not to confuse this open-house with the tournament play I mentioned earlier.
Moving on to SCENE, we are pleased to announce that term extension to agreements with Scotiabank with the SCENE program which will now run for 10 additional years until October 31, 2025. The extension also includes naming rights for two additional Scotiabank theaters bringing our total to 10 theaters and to the Cineplex VIP Cinemas presented Scotiabank and to Scotiabank’s annual commitment with Cineplex Media. Our partnership with Scotiabank has been extremely positive and we are pleased to continue to work together in the future on this popular and much loved loyalty program.
The SCENE loyalty program continue to growth its membership adding approximately 200,000 new members to finish the fourth quarter at more than 7.3 million members. This is the third consecutive year that SCENE has added more than a million members on an annual basis to the program.
Looking at our corporative initiatives, we were very pleased to once again be recognized and as one of Canada’s 10 most admired corporates cultures of 2015 by Waterstone Human Capital. The annual program celebrates 10 organizations across four categories with cultures that drive performance and contribute to the bottom line. This is the second consecutive award for Cineplex and each award is for a three year term.
At yearend we launched a new integrated Cineplex brand platform that ask Canadians to see the big picture and rediscover the importance of entertainment in their lives. The platform that intended to forge a stronger connection between Cineplex and our guests and customers as well as unify all of our varied businesses and 13,000 employees across Canada. If you visited our theaters anytime from mid-December onwards, you would have seen the first initiative of this brand platform which was an animated short-film that played before every movie, entitled Lilly and the Snowman, it tells the story of a girl named Lilly and her friendly snowman and showcases in a very heartfelt way, how life gets in the way of Lilly enjoying the entertainment she once love.
Given the overwhelming positive response we have received from guests in both mainstream and social media, we certainly made the connection with people that we wanted to reach. The short had been seen more than 13.5 million times in theater since its launch in mid-December and also has been viewed online via social media more than 28 million times a day as the campaign went viral.
Now let’s take a look at the film slate for 2016. Overall I’m very encouraged by the film schedule this year. We always like when there is a combination of action, adventure, comedy, drama, science-fiction and animated children’s features throughout the year in addition to strong film sequels. Each quarter this year seems to have a good combination of these genres combined with the good mix of traditional and 3D product.
The first quarter is off to a good start as box office in Canada for the month of January was up over 19% year-over-year as reported by Rentrak. Star Wars: The Force Awakens continues to perform well in January along with The Revenant and Kung Fu Panda 3. Looking ahead, Deadpool, Zootopia, The Divergent Series and Batman vs. Superman Dawn of Justice fill out the quarter.
In the second quarter we can look forward to Melissa McCarthy’s new comedy, The Boss. Families and baby boomers alike will be delighted to see The Jungle Book, this time in 3D back on the big screen as well as Finding Dory also on 3D which is the highly anticipated sequel to Finding Nemo. Captain America: Civil War in 3D, X-men: Apocalypse, Warcraft and Independence Day: Resurgence completes this period.
The third quarter features Steven Spielberg to BFG or the Big Friendly Giant and from the studio that gave us the highly successfully Minions and Despicable Me franchises there is a Secret Life of Pets. Ghostbusters is back within all female comedic cast, then there is Star Trek Beyond, there is still to be titled Jason Bourne film and Suicide Squad in 3D round out the third quarter.
In the fourth quarter, Tom Cruise returns in Jack Reacher: Never Go Back, Tom Hanks returns with the latest Dan Brown novel to hit the big screen with Inferno and Marvel has Dr. Strange. Harry Porter fans will be thrilled to see the prequel to the incredibly successful series when the first of two new films Fantastic Beasts and Where To Find Them hits the big screen at U.S. Thanksgiving and then again in 2018.
The year will finish with the Rogue One: A Star Wars Story and Assassin's Creed, the popular Sony video game starring Michael Fassbender that launces in times with the holidays.
Before I turn the call over to Gord, I would like to say that it has been an extraordinary year for Cineplex. I feel very privileged to lead this company filled with an exceptional senior management team and great employees in our offices and theaters across Canada. I want to take this time to thank them for all of their great work this past year. Also on behalf of Gord Nelson and Pat Marshall, we want to thank the investment community for your ongoing support and votes in recognizing the Investor Relations team at Cineplex with the work we do by winning the Best in Sector Award for 2016 at last week’s IR Magazine Awards, Gala.
Now I will turn the call over to Gord.
Thanks, Ellis, I’m pleased to present the fourth quarter financial results for Cineplex Inc., for your further reference our financial statements and MD&A had been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com. As Ellis mentioned, Cineplex reported all-time fourth quarter and full year records for all revenues categories as well as for attendance, BPP, CPP and adjusted EBITDA.
Total revenue increased 22.6% to CAD 407.4 million and adjusted EBITDA increased 35.9% to CAD 85.2 million. Cineplex's fourth quarter box office revenue was CAD 196.3 million compared to CAD 172.5 million in the prior year, as a result of an attendance increase of 7.1% and a BPP increase 6.3% to CAD 9.63, a quarterly record from the 2014 fourth quarter BPP of CAD 9.06. Our premium product percentage increased to 46.8% of box office revenue in 2015 from 29.4% in 2014.
The impact of premium price product on the average ticket price was CAD 1.22 for this quarter, as compared to CAD 0.67 in the prior year primarily due to the success of Star Wars: The Force Awakens in this quarter. Excluding premium product, our average ticket price increased 0.2% to CAD 8.41 as compared to the prior year quarter.
Food service revenue increased 16.4% to CAD 113.8 million, as a result of the higher attendance and an 8.6% increase in concession revenue per patron to CAD 5.58, a quarterly record. The CPP growth was primarily a result of higher average transaction values, as a result of expanded offerings, including those from Cineplex’s VIP Cinemas.
Total media revenue increased CAD 8.4 million or 17.9% to CAD 55.3 million as always for the quarter. Cineplex media revenue, which is primarily theater-based, increased 38%. Cineplex digital media revenue decreased 19.6% due to lower project revenues which were down 52% as the result of the timing of project installations and this was partially offset by a 30% growth in existing and new business opportunities, including the TimsTV network deployment and the Oxford Properties Group digital installations.
As we have noted in the past, new client agreements typically have long week time and we were pleased to announce the recent agreements with American Dairy Queen and A&W and are optimistic about our opportunities with other potential new clients in 2016 and beyond.
As you may recall, the acquisition of EK3 in 2013 included a differed earn-out payment based on normalized 2015 operating results as defined in the purchase agreements. During the fourth quarter, based on timing and awaited probability of reasonably possible outcomes, we adjusted the differed consideration to CAD 10 million from undiscounted value of CAD 39.6 million, and recorded a gain of CAD 29.1 million as a change in fair value of financial instruments. Final settlement of this item may be materially different from this amount.
With the acquisition of the remaining 50% of the equity of Cineplex Starburst Inc. on October 1 we began consolidating their results during the fourth quarter. Other revenue includes CAD 21.2 million of gaining revenue arriving as a result of the consolidation of CSI’s results. On the acquisition of the remaining 50% of CSI, Cineplex’s historic 50% interest was re-measured at the current fair value, resulting a gaining on equity interest of CAD 7.4 million.
Turning briefly to our key expense line items, film costs for the quarter came in at 53.6% of box office revenue as compared to 51.4% reported in the prior year. The increase was primarily a result of the concentration of the box office results during Q4 as compared to the prior year.
Cost of food service for Q4 2015 was 21.8% as compared to 22.1% in the prior year. Other costs of CAD 192.4 million increased CAD 32.1 million or 20%. Other costs include theater occupancy expense, other operating expenses and general and administrative expenses.
Theater occupancy expenses were CAD 50.5 million for the quarter versus our prior year actual of CAD 50.1 million. Other operating expenses were CAD 123.3 million for the quarter versus a prior year actual of CAD 94.4 million, an increase of CAD 28.9 million. Major reasons for the increase include an increase of CAD 19 million due to the consolidation of CSI, an increase of CAD 1.6 million due to the impact of new and acquired theaters, net of disposed theaters, higher same-store payroll of CAD 4 million due to higher business volumes and extended operating hours at select theaters for the opening of Star Wars as well as minimum wage increases in the certain provinces. Higher 3D royalty fees of CAD 1.3 million due to higher 3D attendance during the quarter, higher credit card fees of CAD 0.7 million due to record ticket pre-sales for Star Wars and higher marketing cost of CAD 1.2 million due to expenses incurred by SCENE, supporting its partnership with Sport Chek and CARA and the programs earned and redeem changes implemented during the quarter.
G&A expenses were CAD 18.5 million for the quarter, which was CAD 2.7 million higher than the prior year, primarily due to a CAD 1.1 million increase in long-term and short-term incentive program expenses.
Interest expense of CAD 5.3 million was CAD 0.4 million lower than the prior year amount of CAD 5.7 million, contributed to the decrease of the CAD 0.2 million decrease in cash interest as a result of lower interest rates on the revolving facility. The company recorded tax expense of CAD 15 million during the fourth quarter of 2015, comprised substantially of current tax expense. Our blended federal and provincial statutory tax rate currently is 26.6% and the losses acquired on the AMC acquisition were fully utilized in 2014.
Net CapEx for the fourth quarter was CAD 22.3 million as compared to CAD 21.2 million in the prior year. We continue to estimate that net CapEx will be approximately, CAD 100 million for 2016.
Record fourth quarter revenues contributed to our strong Q4 results. We continue to remain comfortable with where Cineplex is positioned today. Our strong balance sheet and low leverage ratio allows us to continue to invest in future growth opportunities for the company and benefit from future strong film product.
That concludes our remarks for this morning. And we'd now like to turn the call over to the conference operator for questions.
Thank you. Our first question comes from Adam Shine of National Bank Financial. Please go ahead.
Thanks a lot, good morning. Obviously congratulations there, because these are spectacular results. Couple of questions related to Alberta, obviously not much of an impact needless to say in the Q4, but curious as to whether not early in 2016 any pressure is perhaps more on the advertising side things is necessarily in terms of theater attendance?
Adam, overall we haven’t seen any significant impact coming out of Alberta, as a matter of fact in the first month of the year, the attendance is up in those theaters, because again you have to understand this is an entertainment intrigue and instead of people traveling, they’re staying closer to home and we see in vast situations with recessions that the box office and the business continues to perform extremely well. And on the media side, we really haven’t seen any impact as a result of what’s happening in the Al patch.
I guess, I think early last year or maybe around this time last year Ellis, you were getting a bunch of questions as to whether or not you’d be exploring concessions or food related items sort of into food courts, notwithstanding what you’re going to be doing with the Rec Room which is separate and distinct but your answer to that was, you’ll be experimenting within the theater for variety of different food offerings through 2015. Maybe subject to have that experimentation when, is there any change to the strategy going into 2016?
Adam, as we’ve discussed before, we have a great opportunity in our theaters with experiment with food offerings. And so far we have done very selective out of the theater locations and the plan is to continue to focus on the theaters and to maximize the value coming out of there before we start to run into third-party locations.
Okay, thanks. And maybe just one last one for Gord, just from the context of some of the step up in regards to A&W as well as the Dairy Queen mandates, obviously acknowledging that initially as you ramp up you get the project revenues and then subsequently you build out in terms of advertising and other related revenues. Can you give us, I mean is there any way to quantify some of these mandates, what are the big mysteries, each quarter is obviously the strength of the other revenue line, but anything you could add to that would be appreciated.
Yeah, I mean – Adam, look there were lots of question you can’t typically historically but when we look at 2015’s results, the Cineplex Digital Media’s revenues were just over CAD 40 million. We have approximately 10,000 locations deployed in that business. So as you look forward, you may use those two statistics I just gave you as an indicator of the potential on an optionable deployment.
Okay, thank you very much.
Thank you. The next question comes from Paul Steep of Scotia Capital. Please go ahead.
Great, thanks. I guess I’ll just put this one into two. On the M&A side, maybe Gord, could you talk a little bit about the view on the media space in terms of your outlook there if PAR weak dollar has changed any sort of views in terms of how you might approach expansion in the U.S. on the niche side? And then I thought also in your comments, you were going fast there, whether I heard you say something with regards to around Rec Room and some form of M&A, I just want to clarify that, I may have misheard.
No, to respond to on the M&A, I did not say anything related to Rec Room, it has to be with the expansion of our gaming business.
As we consolidated CSI and we continue to focus on that business.
So Paul, on your first question now with respect to the digital signage business and the opportunity for M&A or business in the U.S., as we’ve mentioned probably for the last year and year and a half or so is we focused on opening an office in the U.S. to attract major North American and U.S. based customers. I think the signing of Dairy Queen is a great example of success that we had down there. We continue to look at opportunities. Most of our cost infrastructure in Canada though, so as we look for – continue to look for opportunities, we’re looking to add on skills, potentially customer relationships that don’t exists today and we’re mindful of where the dollar is but our focus is still to explore the landscape to see if there are other opportunities.
And as we sign some of these U.S. based customers, the revenue stream is typically denominated in U.S. dollars and as I mentioned earlier, the cost base is primarily in Canadian dollars.
Great. And then actually just to carry on with you as well, could you talk a little bit – now that CSI will fully be in the numbers, if there is any revenue seasonality we should just think about, is that sort of filters through? And I guess the final one, if there is any sort of uptick, further uptick we should think about in Q1 on the film cost or were sort of steady state likely around the level we had this quarter? Thanks guys.
Yeah I guess – to answer both of those questions then, I mean, okay the CSI business – there is some seasonality to it if you think, it’s not as pronounced in the exhibition business but typically during seasonal holiday times the business will be a little bit higher than the non-peak periods. So there is a little bit of the seasonality to it.
And film rental – around the film rental, yeah I always tend to – and I know you’ve concerned about Star Wars and I think if you go back to the experience that you saw in 2009 and 2010 with Avatar where you had a film that generated a sizable portion of its revenue in the first quarter as oppose to the fourth quarter. If you look at those kind of trending in terms of film cost that’s a good indicator of what you may see coming forward into 2016.
And Paul, you have to understand that Star Wars has now become the biggest movie ever in North America and crossed CAD 900 million this weekend, so it is the significant contributor in the fourth quarter and in the month of January.
Perfect. Thanks guys.
Thank you. The next question comes from Derek Lessard of TD Securities. Please go ahead.
Yeah, thanks everybody and again congratulations on a great quarter and great year. Maybe if I just start, now that you’ve announced your first turn event and major sponsor in the eSports realm, maybe just wondering if you have any more color on the business model and perhaps we expect that this start contributing?
We’re going to expect it to start contributing in 2016, because I think – as we look at the statistics and the trends in the growth projections in this business as we shared with others and in some of our presentations, the global market in eSports is expected to grow from just under a CAD 1 billion, today it’s about CAD 3 billion in three years or so, about 75% of that revenue stream is expected to be in advertising and sponsorships. And North America is supposed to represent a third of that space, so that’s when you’re looking at what the opportunity is, that’s the opportunity. We were very pleased to announce our sponsorship with Sony and with some other partners that we have in this program. Theaters is high, this is our first tournament, so I think [indiscernible] to kind of project where we think we’re going to be for the rest of the year but interest is high. Average charging in sponsorship interest is high, everything is aligning in terms of where those projections are that we see from a global perspective.
Okay. Maybe just to follow-up on Adam’s question a little bit, in light a bit, the weaker Canadian economy. I’m looking at it, just wondering how you’re thinking about your Rec Room initiative and the upcoming openings in Alberta?
One of the good things on the situation in Alberta the labor costs have actually building the locations have tempered a little bit. And we still feel it is important that people have these escapes in situations where the economy is weak and we are very, very focused on making sure that we have the best offering when we open our location in South Edmonton Common.
Okay. And maybe just one final one Ellis, you touched on it and then just interested in knowing what you saw about the upcoming 2016 film slate, specifically I was wondering if you prefer movie years like the one that’s coming upward seems to be a bit more balanced but lacking that true blockbuster Star Wars?
We always prefer movie years where the box office is continuing to grow and the attendance is higher than the previous year. That being said, it’s always nice to have repeated rather than one big home run, but we’ll take that home run also. And this year is slightly different in the fact that there are number of movies that we see that could breakout, but again there is important concepts that are out there that need to be verified with the public.
Okay, thanks guys.
Thank you. The next question comes from Tim Casey, BMO. Please go ahead.
Thanks, good morning. My question relates to the screen media business, the numbers were quite strong to the end of the year and Gord you mentioned briefly that there were some new customers in there. Is there anything else that’s happening there, was there some onetime business or you reporting things differently, I’m just wondering how we should think about that business going forward and maybe asking for little more color on what drove it through the end of the year? Thanks.
Yeah, I think – and we fairly wanted to visit our theaters too, I think [indiscernible] advertisings were out there, I mean we’re absolutely pleased with kind of the growth of the mobile gaming type category and had some significant successes in that category. So, there was combinations as we said in our notes is really new – sorry, existing customers continuing to participate in the growth of new customers. Now with the success and the expected success of Star Wars attract advertisers in the theaters, I mean not the potential to known [indiscernible] but really we had growth in both existing and new customers.
Thank you. [Operator Instructions] The next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.
Good morning, thanks for taking my questions. I just want to start with the food service numbers continues to be strong driven by VIP. I was just wondering, looking back a year or so the projections that you had for VIP on the food service side, are these numbers that are coming in ahead of that, I mean it seems to be – it seems to be that it is, I mean given the CPP growth that we’ve seen. Does this maybe cause you to sort of revisit the rollout of VIP and look at it maybe an expanded rollout for that platform?
Aravinda, the VIP is contributing but again the VIP is a very small portion of the total gain on the concessions. It also has to do with our offerings that we have in our traditional auditoriums and theaters. And in total with the increase in the basket size with our guests, we have seen that growth year-over-year. Now we are expanding the VIP but again we are doing it in a controlled and measured fashion across the country with the next one opening in March in Vancouver.
Okay, thanks for that Ellis. And with respect to digital signage business, I mean I know you talked about some of the dynamics in the quarterly numbers, but when you look at it on an annual basis, obviously you’ve signed some very good deals with the number of operators but pro forma when you bought EK3 it was sort of just out of CAD 40 million revenue with still a little bit north of 40 right now. Just help me understand sort of the dynamics that were there some maybe some customers that you sort of exist when you bought EK3 that are not sort of in the revenue mix right now.
Yeah I mean I think – look I think Aravinda there is the one thing that we’ve learned through this – sort of having the business for a couple of years now is the length of the lead time in the sales process with major significant customers. And that’s kind of the sweet spot for our business is we’re partnered with major brands in significant number of locations. So, I think if anything it’s kind of the length of time it’s taken to secure some of the new customers that came more of a surprise for us.
Okay, I understand. And then last question from me to Gord, do with respect to the positive working capital swing it looks like, I mean not just for the quarter but also for the full year, it looks like it’s mostly accounts payable. Is this around sort of film payments at all or I just wanted to get your thoughts on that and will that smooth out as we go back into – as we look at the 2016 number on a full year basis?
Yeah, roughly it comes down to timing of things. The business volumes during the fourth quarter particularly peaked in the last couple of weeks, and just given traditional payment terms on anything you’re going to have 30 days’ worth of, 30, 45 days’ worth of payables in there any point of time. So it’s’ really kind of based on the significant business volumes, both at the theater level and from the media perspective. So yeah, it will reverse itself overtime. Q4 is always the highest source of working capital as we’re selling gift certificates and we’re selling – and then we’re also having to experience the huge business volumes, the payment terms that kind of extended in the first quarter.
Great, thank you. I’ll leave it then, congrats on the quarter.
Thank you. The next question comes from Kenric Tyghe of Raymond James. Please go ahead.
Thank you, good morning. Ellis, with particular strong January, I’m curious given how sort of eight typical February was last year with the 50 Shades success as your thoughts on this first quarter, I mean is there enough in the January carry and the backend of the flag to your mind to sort of support the expectations around this quarter, I mean what’s your level of confidence around the quarter given that we’re going into an typical line, the middle of an a typical February?
Well the big weekend was the last year with 50 Shades of Grey and Kingsman. This year we’re opening Deadpool which seems to be doing very well from a tracking perspective, we are opening Zoolander and we’re opening How to be Single. So it’ll be interesting to see how this year the three movies can perform compared to last year. And then you got Gods of Egypt, you’ve got Zootopia, you’ve got the Divergent Series and Batman vs. Superman. So, it’s a quarter that still have some big pictures for the balance of the quarter, plus the carryover from what we had in January. So it’s hard to tell how the quarter is going to end but at this time we are – for January ahead of last year.
And just on that now, can you just confirm, was that 19% on the Rentrak number for January, did I hear you correctly?
That is correct, year.
Thank you. And then just switching gears on the eSports quickly, I understand the longer term opportunity and roadmap. I’m curious on how this first competition is sort of been relative to your expectations, whether you’ve been positively surprised on the uptick or the energy around the industry you’ve realized not something you can sort of put numbers to as yet but I’m really just trying to get an idea around the excitement level relative to what you expect it’ll be uptick relative to what you’d expect around this first tournament?
Yeah I think, look the excitement level is really there, there has been a lot of attention given to the event from kind of expected sources and unexpected sources. We have this interesting event that we’re going to host on February 12, so you’re all invited to go and see during the all-star week. We have our first – our regional tournaments occurring on February 21 and the national on March 6 for our first event. So it’s going to be a really exciting event and I invite you guys to come and check it out on person, yeah.
Great. Thank you and congrats Ellis with that.
Thank you. The next question comes from Rob Peters of Credit Suisse. Please go ahead.
Hi, thanks for taking my question. Most of mine have been answered but maybe a broader strategic question. When you guys think about kind of long-term growth outside of the box office, you’ve got a number of different initiatives with the eSports digital media and games that you’ve touched on today, kind of maybe if we look out a couple of years from now where do you think – what do you think is going to be the biggest driver of the business outside of your traditional box office and concessions?
I think that media growth will be both from the digital perspective and our traditional media business will continue to grow, and it’d be a major contributor to our EBITDA. And in addition to that, you mentioned both eSports and gaming, perhaps we’ve also focused on alternative programing at the theater level which is also business that continues to grow. So it’s all about using our infrastructure and our assets to make our company stronger and with the opening up the Rec Room we are very excited because it really pulls together a lot of the assets we have today.
Perfect, thank you, Ellis. And maybe just one follow-up on that, when we look at digital media I think you either touched on there is kind of been a longer lead time on that portion of the business. Previously you had mentioned about like doubling the business, is that still the goal overtime to try and get the revenues doubled there and is there may be a change in the timeline on that or how comfortable are you guys feeling about achieving that longer term?
Yeah so I mean, absolutely, I mean I think it’s taking a little bit longer. We’ve announced some significant new customers. I gave your our existing location count at roughly 10,000 and with an American Dairy Queen with the potential of just under 5,000 that would be largest customer. So, we’re in the midst of a number of other processes, we’re very optimistic about the [indiscernible]. So, we’re still comfortable in those magnitudes, I’d say it delays like a year or maybe two as some of these customers now rollout over an extended periods of time.
And Rob, our focus is on the long-term growth of Cineplex and yes, we have spent money from an R&D perspective to continue to grow these opportunities, but again it’s more about what is Cineplex going to look like three years from now, not worrying about the next quarter.
Absolutely, and good to see those deals starting to ramp up. Thank you very much.
Thank you. There are no further questions at this time. I would like to turn the call over to Ellis Jacob.
Thank you very much and thanks for joining us this morning. We look forward to seeing you at our annual general meeting on May 11, 2016. Please mark your calendars. Have a great day.
Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your lines. And have a great day.
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